Having a merchandise trade deficit of over $100 billion in each of the last four years can lead to many unfathomable consequences. With the new government at the Centre making all the right noises to boost exports and trade ties with neighbours, The Dollar Business caught up with Sanjay Budhia, Chairman, CII National Committee on Exports & Imports, to figure out what should be done to trim deficit and what to expect from the new foreign trade policy (FTP) scheduled to be released this month.

Purba Das | @TheDollarBiz

TDB: We have failed in our objective to double our exports in the three years to FY2014. Do you think the then government’s target was too ambitious?

Sanjay Budhia (SB): India’s exports touched $312 billion in FY2014, registering a 3.96% y-o-y growth. But they fell short of the annual target of $325 billion for the second straight year. Following suggestions of various industry associations, the government is now open to considering a long-term export target of $750 billion by FY2019. I feel, instead of setting annual targets, it is a better idea to work on a long-term export target while having short to medium term sectoral reviews.

TDB: We rank a lowly 16th in the list of world’s top merchandise exporters. If proper policies are put in place, how far do you think can we scale up?

SB: Our first target should be to get into the top 10. Our policies should be directed towards climbing up the ladder. Once that is done, we can reach new heights.

TDB: As the Chairman of CII’s National Committee on Exports & Imports, give us three main things you want to see in the upcoming foreign trade policy (FTP)?

SB: The top three issues that should be addressed in the upcoming foreign trade policy (FTP) are revival of Special Economic Zones (SEZs), reimbursement of taxes and duties and the extension of Focused Product and Focused Market Schemes. Over Rs.2 lakh crore have been invested in SEZs, which account for close to 30% of India’s total exports and provide sizable employment. SEZs have a huge potential for increasing exports and needs stable policy. There are serious issues that have the potential to make all the investment made in SEZs go waste if no remedial measures are taken at the earliest. Exports made from SEZ-based units are not entitled to avail benefit of duty drawbacks and on top of it they are deprived from Focus Product Scheme (FPS) and Focus Market Scheme (FMS) as well. Also, given the current economic scenario, the government should announce stimulus to help exporters fight against the slowdown in the global economy. The stimulus is very much needed to help our exporters compete against their Chinese counterparts, who get a lot of special support from their government. India has been struggling to control its current account deficit and increasing exports should be a national priority. The drawback rates should be re-evaluated and increased to encourage the exporting community. The transit time of exports from India across the Pacific or Atlantic oceans have continuously been increasing. This is because of regulations imposed by various foreign shipping lines and priority given by them to exports originating from the Far-East. Such delays are also making Indian exports uncompetitive in the international markets. Hence, creation of a national carrier to service these long routes is of utmost importance.

TDB: India’s FTP has always been aimed at boosting exports from labour intensive industries. Do you think this is a flawed strategy since we are trying to kill two birds with one stone, which is unlikely to happen?

SB: Focusing on labour intensive industries is very much required and is a continuous process. Ultimately, we have to take care of our manpower, which is an asset for our country. We cannot move ahead by ignoring one sector. Hence, focusing on boosting exports from labour intensive industries is very important and much required.

TDB: Our interaction with a lot of exporters reveal that India suffers from a poor brand image. Where do you stand on this and what should be done to create a niche brand like ‘Swiss Made’?

SB: Branding cannot be done overnight. Creating a brand comes from quality of the products, the pricing, the sustainability and delivery of the products on time. That is how we can create and sustain our markets and ultimately that will help us create the Indian brand. This should be followed by marketing and advertising and holding seminars to promote brand India. CII organises a seminar on ‘Brand India’ in all major countries in the world with high level delegation in attendance. In fact, the new FTP is expected to include a long and medium term strategy to enhance trade competitiveness and overall growth of India’s foreign commerce with greater emphasis on identification of markets, providing branding assistance and assessing the need for free trade agreements with particular countries. The government will also be looking at promoting value-added products and strengthening India’s foothold in bigger economies and regions like US and EU, where India has a relatively low share in total trade when compared to China and other emerging economies.

TDB: Interest rate subventions have been another area of focus in India’s FTP? Do you think that it has its limitations, since we anyway are a high inflation-high interest rate economy?

SB: In India, the interest rates are among the highest in the world. Naturally, for exporters, every single penny counts. In a scenario where our competing countries have nil or negligible rates of interest, high interest rates definitely add tangible costs to the overall competitiveness of Indian exports. Low interest rates are very important for the availability of credit at a reasonable cost to our exporters. We should be globally competitive in terms of financing, cost of credit and availability of credit.

TDB: Lack of warehousing and improper logistics have also hampered India’s exports. Did you see anything in the recent budget announcements to feel optimistic on this front?

SB: The Union Budget has definitely taken care of this requirement. Big boost to infrastructure has been given in form of financing, environmental clearances and inland waterways among others. I think the government is conscious of what is needed to be done in order to boost exports.

TDB: India’s merchandise trade deficit has been over $100 billion every year since the financial crisis in 2008. What do you think has caused this and what should be done to reverse the trend?

SB: The overall economic slowdown coupled with high oil prices has impacted not just India but other countries as well. But now, we are gaining momentum and I am positive that we will be back on the growth track very soon.

TDB: Do you support extraordinary measures like what was done in case of gold last year to trim deficit? Is it time to reverse the decision?

SB: We have to move with time. Any decision that is taken is a calculated one and should be changed if the situation demands. But such decisions cannot be reversed overnight. Changing them should be a well thought out decision.

TDB: India’s trade with its neighbours, including Pakistan, has been dismal. What steps should the government take to strengthen the country’s trade ties with its neighbours?

SB: It is the age of competition and cooperation – the reason our Prime Minister Narendra Modi invited heads of SAARC nations to his swearing-in ceremony. He also made his first visit to Bhutan and also sent the External Affairs Minister to Bangladesh. So, the new government is putting in all the efforts to strengthen its trade ties with its neighbours, and that certainly includes Pakistan.